Great Trades

Great stock trades based on fundamentals and technical analysis.

Friday, June 26, 2009

Confluence of Resistance -- VIX Bounce Coming?

After Tuesday's small NYMO change day signaled a big move day coming, the big move came on Thursday, as the S&P 500 moved sharply off its lower Bollinger Band and powered up toward last week's high. Now, the market is near a key resistance area, and how it reacts to that resistance will likely determine the direction of the next big move.

If the S&P 500 can break through the resistance in the area of last week's 927 high, it should make a push toward the 956 high of the week prior. Earlier in this rally, such an up move would have been a given considering next week is month end, quarter end, and a holiday-shortened week. However, there are indications that a market shift is taking place...

Here's a blog post indicating that the VIX closing below the lower Bollinger Band has been a pretty reliable sell signal, and sometimes significant market turning point: http://www.trivisonno.com/vix-up-to-trix

Not only did the VIX close below the lower Bollinger Band yesterday, but it did so today as well, with the VIX closing down 1.6% even though the S&P 500 closed down (as you can see from the chart, they normally are inversely correlated). This chart of the VIX and SPX shows this double violation of the lower Bollinger Band, as well as the S&P 500's bounce off the lower Bollinger Band earlier this week:

You can also see in this chart that the 20-day moving average (gold line) sits right at the 927 area, and the PAR SAR Stop and Reverse indicator (little pink boxes above the SPX) will also be in that area early next week. This confluence of resistance means it's important for the market to power through through that 927 area next week in order to have the month-end/quarter-end/holiday rally one would expect. If it fails to break though that area and rolls over instead, a break of this week's low would confirm a head and shoulders topping pattern and would also feature a bearish 13/34 EMA cross (red and blue lines).

Given the current setup, a low-risk, potentially high-reward strategy might be to short any strength in the S&P 500 early next week, and stop and reverse to long on a breakout of the 927 resistance area. That would allow one to profit from whichever way the market breaks.

The double VIX lower Bollinger Band penetration argues for a market break lower, while the "Golden Cross" bullish 50/200 day moving average crossover this week and the quarter-end/holiday week next week argue for a break higher. The key is to be ready for both and profit either way.

Monday, June 22, 2009

Biggest Down Day since April 20

The big move down today came as expected, with the Dow losing over 200 points, the Nasdaq losing over 60 and the S&P 500 losing over 28. It was the biggest one-day loss in the stock market since April 20, which happens to be the last time we called for a big down day on this blog.

Our automated trading system had another great day, as it was well prepared for the big down day, and also profited nicely from the bond and dollar rallies as well as the gold pullback.

We will continue to focus on expanding and testing our automated futures trading system, but will also continue to post on this blog periodically.

Saturday, June 20, 2009

Down Monday?

While the S&P 500 had a nice rally of about 20 points from Thursday morning's low to Friday morning's high, it was not really the big move in one day that has usually occurred recently after a small NYMO change day. With the somewhat muted reaction to this indicator so far, we're looking for a potential big move day on Monday, the first trading day after quadruple witching expiration.

Whereas on Wednesday we were looking for a move up, which we got, we're now leaning toward the next big move being down. The lackluster rally in response to the NYMO indicator could portend a down move, though it's hard to tell if quadruple witching expiration had an effect.

If Friday's lows get broken on Monday, we'll be looking for a more sizable down day. However, if the market breaks out above Friday's highs, we'll be looking for continued up side. In any case, we'll be ready for a break in either direction, as our system will react to wherever the market goes. There should be some nice volatility on Monday from which active traders can profit.

Live testing of our automated system continues to go very well, with strong returns and minimal draw down. With the arrival of our new hardware, we continue to expand the system's coverage. The bond and U.S. dollar futures trading so far has provided very nice gains to supplement the stock index futures trading, and we're now adding gold futures trading. We'll continue to expand the scope to include oil and other commodities.

Wednesday, June 17, 2009

Big move day likely

With a small NYMO change today, there's a very good chance the market will get a sizable move within the next couple of days.

This indicator doesn't indicate market direction, but after 3 straight down days in the S&P 500, and after today's doji candlestick and bounce at the 200-day moving average, odds would favor an up day. However, if the 200-day moving average breaks, the big move could be down. Either way, we'll be ready for it.

With quadruple witching this week (contracts for stock index futures, stock index options, stock options and single stock futures all expire), anything can happen, but this week often features extra volatility.

Friday, June 05, 2009

20 in a row

As our Gap Up Trader expected, the S&P futures did trade higher, and significantly so, during the hour before the open after a lower than expected number of job losses were reported in the May unemployment report. The automated strategy took very nice profits right after the report came out, spiking S&P futures well over 10 points higher than yesterday's close.

Despite the major market indices ending near unchanged, it was a very nice 10%+ day for our automated futures trading system, led by the big US Dollar rally (we added US Dollar futures trading this week as we expected a reversal from the downtrend to an uptrend).

Testing continues to go very well, and we continue to expand the system with new strategies and new futures coverage. Because of the increased computing power required, we've ordered additional hardware to handle the workload.

We'll continue to post on this blog periodically, but our primary focus is on expanding and testing our automated futures trading system.

Thursday, June 04, 2009

Gap Up Trader

One of the strategies in our automated futures trading system is a gap up trader. Below is the equity curve for this strategy for June E-mini S&P futures:

This is an unusual equity curve, as there have been no losses since the June futures became actively traded. After today's gain, it now has had 19 winning trades in a row during this strong rally period.

This strategy went long again at today's close and will exit during the first hour tomorrow (or up to an hour before the open). If it exits above today's close, it will be the 20th winning trade in a row.

One could say it's overdue for a loss, and with the employment report due out before the open, this could be the first one. In any case, we thought some might be interested to know that this indicator is looking for higher trading early tomorrow.

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Great Trades contains opinions, none of which constitute a recommendation that any particular security, transaction, or investment strategy is suitable
for any specific person. Great Trades does not provide personalized investment advice.